McKenzie v. Brannan ( 2021 )

United States Court of Appeals
For the First Circuit
No. 20-2170
MICHAEL MCKENZIE, individually and d/b/a American Image Art,
Plaintiff, Appellant,
v.
JAMES W. BRANNAN, as personal representative of the Estate of
Robert Indiana,
Defendant, Appellee,
AARON M. FREY, in his official capacity as Attorney General of
the State of Maine,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. John A. Woodcock, Jr., U.S. District Judge]
Before
Thompson, Hawkins,* and Barron,
Circuit Judges.
John J.E. Markham, II, with whom Bridget A. Zerner and
Markham & Read were on brief, for appellant.
Seth W. Brewster, with whom Alfred J. Falzone, III and
Eaton Peabody were on brief, for appellee.
* Of the Ninth Circuit, sitting by designation.
November 22, 2021
THOMPSON, Circuit Judge. Famous artwork, business
relationships, and contract law collide in today's case. The
matter lands here amidst a tangle of litigation involving an art
publisher, the personal representative of the estate of a famous
American artist, and the agreement(s) between them. The publisher
says the parties' original contract, which included an arbitration
provision, was terminated and supplanted by a superseding
contract, which did not contain an agreement to arbitrate.
According to the publisher, the arbitrability of the parties'
dispute about this newer contract's enforceability and impact on
the earlier agreement to arbitrate should be decided by the court,
not arbitrators. So, in the publisher's telling, the district
court erred when, in accordance with the original agreement's
arbitration clause, it sidestepped the potential effect of the
newer contract and concluded that the gateway question of
arbitrability was for the arbitrators. The estate, of course,
says the district court got its analysis just right.
After careful review of this nuanced matter, we vacate
the grant of the motion to compel arbitration, the dismissal of
the request for a preliminary injunction, and the dismissal of the
complaint, and we remand for further proceedings.
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I. BACKGROUND1
A. Robert Indiana, Michael McKenzie, and the 2008 Agreement
During the American Pop Art Movement of the 1960s, artist
Robert Indiana ("Indiana") conceived of an image of the word
"love." His distinctive rendering of the word -- colorful, all-
caps letters arranged in a square, with the L and a tilted O
sitting atop the V and E -- became quite famous. Readily
recognizable, Indiana's "LOVE" has been depicted in various
artistic media, such as prints, silkscreens, and sculptures, and
it was even featured on United States postage stamps. Originally
from the Midwest, Indiana relocated from New York, where he had
lived for a time, to Vinalhaven, an island off the coast of Maine.
He lived there from 1976 until his death on August 9, 2018.
Michael McKenzie ("McKenzie"), an art publisher, began
collaborating with Indiana in the mid-1970s. In 2008, in the
course of this ongoing relationship, McKenzie (operating through
American Image Art ("AIA")) created "HOPE" artwork -- images of
the word "hope" laid out in the same format as Indiana's "LOVE"
artwork -- and McKenzie wanted to work with Indiana to make color
1Because this matter has its genesis in a motion seeking
"to compel arbitration and stay federal-court proceedings, 'we
draw the relevant facts from the operative complaint and the
documents submitted to the district court in support of' that
'motion.'" Toddle Inn Franchising, LLC v. KPJ Assocs., LLC, 8
F.4th 56, 59 n.1 (1st Cir. 2021) (quoting Cullinane v. Uber Techs.,
Inc., 893 F.3d 53, 55 (1st Cir. 2018)).
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variations of it. The ensuing HOPE collaboration between Indiana
and McKenzie led to a 2008 publishing agreement between the two
(sometimes called the "Agreement for Art Editions contract,"
sometimes the "HOPE agreement," but we'll refer to it here as "the
2008 Agreement"), and that contract is what allowed McKenzie and
AIA to produce HOPE sculptures, paintings, objects, and prints.
The 2008 Agreement lays out the responsibilities of AIA and Indiana
in this collaboration and details the specifics of art production.
Important to the debate before us today is the 2008 Agreement's
arbitration provision, which provides: "Any disputes will be
settled by arbitration through the American Arbitration
Association [("AAA")], governed by the laws of the State of New
York."
Indiana and McKenzie operated under the 2008 Agreement
until Indiana died, at which point the rights and obligations of
Indiana passed to his estate ("the Estate"), with James W. Brannan
("Brannan") serving as the Estate's personal representative.
Indiana's LOVE artwork, not to mention his many other
highly acclaimed works of art, brought him significant financial
success -- one need look no further than the $89,738,458.38 fortune
borne out in his probate records to confirm as much. Indiana
bequeathed that entire estate (minus any claims and debts) to The
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Star of Hope, Inc. ("Star of Hope"), a nonprofit in Vinalhaven
that aims to promote visual-arts education.2
B. The Initial Disputes and Resulting Proceedings
Right around the time of Indiana's death in 2018, various
disagreements between a handful of different people and entities
affiliated with the artist began to surface. The one with which
we are concerned -- McKenzie and the Estate sparring over the 2008
Agreement's production-rights terms, i.e., the dispute from which
the issue now on appeal stemmed -- actually began as crossclaims
in a Manhattan-federal-court (S.D.N.Y.) action in which a company
called Morgan Art Foundation (an offshore Bahamian entity) sued
McKenzie (d/b/a AIA) and Indiana (naming the Estate after Indiana's
passing) under a breach of contract theory.3 See Morgan Art Found.
Ltd. v. McKenzie, No. 2018-cv-04438, 2020 WL 6135113, at *1 n.1
2 Because Star of Hope is a Maine charity, Aaron M. Frey
("Frey"), Maine's Attorney General, was joined as a defendant in
his official capacity pursuant to Maine Revised Statutes, Title 5,
§ 194(4), which instructs that the Attorney General "must be made
a party to all judicial proceedings in which the Attorney General
is interested in the performance" of his duties, including the
duty to "enforce due application of funds given or appropriated to
public charities within the State and prevent breaches of trust in
the administration of public charities," Me. Rev. Stat. Ann. tit.
5, § 194(2). While Frey was involved in the litigation below, as
we'll explain, we note that Frey has not appealed the district
court's decision, takes no position on the appeal, and has not
participated in the appeal.
3 Between Morgan, McKenzie, the Estate, and other parties to
the Morgan lawsuit, claims, crossclaims, and counterclaims abound.
But for our purposes, we need not concern ourselves with anything
beyond the dispute between McKenzie and the Estate.
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(S.D.N.Y. Oct. 18, 2020). In answering that suit, McKenzie cross-
claimed against the Estate -- he alleged that the 2008 Agreement
authorized McKenzie to produce and sell the subject artwork. The
Estate's response was a motion to compel arbitration on McKenzie's
claims, filed pursuant to the 2008 Agreement. Eventually, McKenzie
and the Estate, though remaining parties to the Morgan case,
"agree[d] [the 2008 Agreement] govern[ed] the claims between
them," and therefore their crossclaims against each other should
be sent to arbitration before an AAA panel in New York in
accordance with the 2008 Agreement's arbitration clause (which,
recall, provided that "[a]ny disputes will be settled by
arbitration through the [AAA]"). The Estate's motion to compel
that arbitration was granted.
And so, off they went to put the wheels of the
arbitration scheduling machine in motion. We refer to the
resulting arbitration as the "New York arbitration." As that got
underway, though, a new dynamic sprouted in the north.
Anticipating the significant expense of the New York arbitration
and its associated proceedings, and concerned that those expenses
(not to mention the cost of the ongoing S.D.N.Y. litigation) were
cutting into funds that should be going to Star of Hope, Frey
tapped in. In intervening from Maine, Frey parlayed an alternative
dispute resolution discussion that was taking place in the Maine
state court case probating Indiana's will, into an agreement
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between McKenzie and the Estate (and others) to take their quarrels
before a mediator.
C. The Mediation, Resulting Term Sheet, and Aftermath
In late November 2019, after a two-day mediation in
Portland, Maine, McKenzie and the Estate left the proceeding with
a signed document titled "Confidential and Binding Term Sheet"
(we'll call this the "2019 Term Sheet").4 The 2019 Term Sheet
tackled a number of topics, like rights to publish and sell certain
artwork, collaborations involving Indiana artwork and art
production, authenticity determinations, and so on. Pertinent to
our mission today are these terms:
• "AIA and the Estate will enter into a new [production]
agreement that will permit AIA the exclusive right to publish
and sell authorized HOPE prints and sculptures";
• "[T]he Original HOPE Agreement [(the 2008 Agreement)] is
terminated";
• "The [New York] arbitration between the Estate and AIA
pending in the AAA will be dismissed with prejudice"; and
• "This term sheet is intended to be binding, and will be
replaced by a more formal Settlement Agreement and Production
Agreement. Payments, releases, dismissals and other
consideration under this term sheet will be made after a more
4 Representatives from Frey's office attended the mediation.
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formal Settlement Agreement and Releases and Production
Agreement are executed."
The day after the parties left the mediation, counsel
for the Estate emailed the New York arbitration panel: "We are
pleased to report that the parties have signed a term sheet that
resolves all claims and counterclaims in this action. The parties
request a one-month adjournment . . . to allow time for the
preparation and execution of the settlement agreement and related
documentation."
Evidently, attempts to arrive at the contemplated "more
formal" agreement didn't pan out,5 so the Estate recommenced the
New York arbitration. Operating from the position that the 2019
Term Sheet was the enforceable contract in place -- and, through
it, the parties had agreed to terminate both the 2008 Agreement
5 The record reflects that the parties attempted to fashion
the "more formal Settlement Agreement and Production Agreement" to
replace the 2019 Term Sheet, but those efforts broke down.
McKenzie says this owes to the Estate's significant delay, followed
by rounds of proposed revisions and additions by the Estate that
amounted to the Estate "walk[ing] away from the substantive
provisions" of the 2019 Term Sheet. And, as we'll discuss more
later, the Estate's position (taken here and below) is that the
2019 Term Sheet wasn't binding or enforceable, and, even if it
was, McKenzie breached and repudiated it soon after it was signed
-- McKenzie did so, the Estate says, by flouting its
confidentiality and non-disparagement terms, refusing to accept
key settlement terms, rejecting the Estate's draft of the final
settlement agreement, and refusing to negotiate a separate
production agreement.
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and the New York arbitration -- McKenzie took action in the
District of Maine to stop the arbitration from resuming.
D. Maine District Court and the New York Arbitration
Back in the Pine Tree State, McKenzie filed a complaint
and, with that, triggered a flurry of motion practice. The
complaint fired off a single shot -- one count seeking declaratory
and injunctive relief. McKenzie wanted (and still seeks) a
judgment declaring the 2019 Term Sheet "contractually binding" and
"specifically enforceable," as well as an order staying and
enjoining the parties from continuing the New York arbitration.
The thrust of his pleading is: the 2019 Term Sheet is valid,
binding, enforceable, and resolved all the parties' disputes about
production; it provided that the pending New York arbitration was
to be dismissed with prejudice, so the New York arbitration should
not go forward; and any dispute about the 2019 Term Sheet's
enforceability should be handled by the court. In response, the
Estate moved pursuant to the Federal Arbitration Act ("FAA") to
compel arbitration and also to stay proceedings in district court,
or, alternatively, at least to stay the action pending a decision
by the New York arbitration panel on the topic of arbitrability of
the parties' dispute. The Estate's argument in favor of compelling
arbitration was: the 2019 Term Sheet was not binding because it
was subject to further negotiation and did not represent a formal
settlement agreement; but the parties were bound by the 2008
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Agreement, which directed "[a]ny disputes" to arbitration; and any
lingering doubts about arbitrability needed to be sorted out by
the arbitrators, not the court.
McKenzie's motion for a preliminary injunction came
next, laying out his argument that the Estate should not be
permitted to proceed with the New York arbitration until the
dispute described in his complaint was resolved since the parties'
dispute was founded on his stance that the valid, enforceable, and
superseding 2019 Term Sheet "not only does not agree to
arbitration, it provides that the existing arbitration commenced
under the earlier [2008] Agreement should be dismissed." That
filing was followed by McKenzie's opposition to the Estate's motion
to compel and stay, which similarly offered up arguments that the
2019 Term Sheet was binding and superseded the 2008 Agreement and
that arbitrability of the 2019 Term Sheet dispute was for the court
to decide. And, unsurprisingly, the Estate lobbed up an opposition
to McKenzie's motion for a preliminary injunction.6
In fielding all of this, the district court kicked off
its analysis by acknowledging the central question -- "whether the
Mediation Term Sheet is enforceable and supersedes the 2008
Agreement" -- but then explained that question was actually "a
6 Frey chimed in along the way too, but since he is not
participating on appeal and his various arguments below primarily
mirrored those of either the Estate or McKenzie (depending on the
issue), there is no need to sum up his submissions here.
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secondary" one. McKenzie v. Brannan, 496 F. Supp. 3d 518, 532,
533 (D. Me. 2020). Specifically, in view of "the language from
the 2008 Agreement's arbitration clause," the district court
wrote, the 2019 Term Sheet's enforceability is secondary to "[t]he
first question and the one that resolves this motion," which, the
district court said, "is who decides whether the claims are
arbitrable -- a gateway question known as 'arbitrability.'" Id.at 533 (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79,
83 (2002); Fantastic Sams Franchise Corp. v. FSRO Ass'n Ltd., 683
F.3d 18, 24-25 (1st Cir. 2012)). The district court explained
that it needed to "determine whether the 2008 Agreement delegates
the authority to decide arbitrability to the arbitrator rather
than the Court," then concluded "that the 2008 Agreement's
arbitration clause directs an arbitrator, rather than this Court,
to determine the threshold question of whether the dispute
regarding the enforceability of the Mediation Term Sheet is
arbitrable." Id. It arrived at this conclusion by looking at the
2008 Agreement's "direct and broad delegation language," which the
district court said showed "clear and unmistakable intent to have
an arbitrator decide whether the Mediation Term Sheet is
enforceable and whether the 2008 Agreement has been superseded
[or] remains valid."7 Id. at 535.
The district court's thorough decision went on to analyze
7
the 2008 Agreement, focusing on incorporation versus mention of
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Given its construction of the analysis to be done, the
district court did not "make any findings regarding whether this
dispute is arbitrable or whether the Mediation Term Sheet is
enforceable." Id. at 533. But in an even-if exercise, the
district court indicated that, "to the extent Mr. McKenzie argues
that the 2008 Agreement terminated and is no longer valid, the
Court concludes that the arbitration clause would still be
effective" -- just because an agreement terminates, it doesn't
necessarily mean the duty to arbitrate went down with the
terminated contract. Id. at 539 (citing Biller v. S-H OpCo
Greenwich Bay Manor, LLC, 961 F.3d 502, 512-514 (1st Cir. 2020)
(discussing the severability of an arbitration clause from a
terminated contract and the presumption that an arbitration clause
survives the termination of the underlying contract, absent a
challenge to the arbitration agreement itself)). But, since
McKenzie asserted that the 2008 Agreement wasn't just terminated,
but rather was totally replaced by the 2019 Term Sheet, the
district court went on to remark that the arguments on this point
presented "a conundrum":
if the Mediation Term Sheet is enforceable, then it is
arguably a replacement contract that supersedes the 2008
Agreement and precludes arbitration; if the Mediation
Term Sheet is not enforceable, then the 2008 Agreement
AAA rules, as well as our precedent on the topic. McKenzie, 496
F. Supp. 3d at 535-36. We don't need to detail or get into any of
that, though, given our outcome today.
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and its arbitration clause are completely intact. The
problem is that to reach the merits of this issue, the
Court would first have to conclude that the issue is not
arbitrable and the Court just ruled that the AAA, not
this Court, must resolve the gateway issue of
arbitrability. Based on its conclusion that the AAA
Panel should decide arbitrability, the Court declines to
issue an advisory opinion on an eventuality that may not
occur.
Id. at 541 (emphasis added).
These analyses guided the district court's procedural
outcomes on the pending motions as follows: it granted the
Estate's motion to compel arbitration and stay proceedings, id. at
540; it dismissed McKenzie's motion for a preliminary injunction
as moot (because the arbitrators would decide arbitrability of the
dispute), id. at 541; and it instructed that, if "the AAA Panel
determines that the dispute is arbitrable and proceeds to the
merits, the Court will likely dismiss the case without prejudice
since 'all claims asserted in the case' will have been found
arbitrable," id. at 540 (quoting Next Step Med. Co., Inc. v.
Johnson & Johnson Int'l, 619 F.3d 67, 71 (1st Cir. 2010)).
From there, the arbitrability question went to the AAA
panel in New York, which concluded that the parties' dispute was
subject to the 2008 Agreement's arbitration provision, meaning the
clash over the 2019 Term Sheet (whether it can/should be
specifically enforced) would need to be arbitrated. That triggered
the district court's issuance of a show-cause order asking the
parties to explain why the case shouldn't be dismissed, but
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everyone agreed to dismissal. And so the case was dismissed
(without prejudice) and proceeded to an evidentiary hearing before
the AAA panel.8
This timely appeal followed, with McKenzie taking aim at
the district court's grant of the motion to compel arbitration,
the dismissal of McKenzie's motion for a preliminary injunction,
and the eventual dismissal of the Maine case.
II. The FAA and Our Review
We begin our work by laying out the legal backdrop
against which our review must play out, starting with the FAA. "A
written provision in . . . a contract . . . to settle by arbitration
a controversy . . . shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for the
revocation of any contract." 9 U.S.C. § 2. "Designed to counter
'widespread judicial hostility to arbitration,' the Act makes
arbitration 'a matter of contract, and courts must enforce
arbitration contracts according to their terms.'" Biller, 961
F.3d at 508 (first quoting Am. Express Co. v. Italian Colors Rest.,
570 U.S. 228, 232 (2013), then quoting Henry Schein, Inc. v. Archer
& White Sales, Inc., 139 S. Ct. 524, 529 (2019)).
"We review both the interpretation of arbitration
agreements and orders compelling arbitration de novo." Id.8 On this record, the current status of the New York
arbitration is unclear.
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(quoting S. Bay Bos. Mgmt. v. Unite Here, Local 26, 587 F.3d 35,
42 (1st Cir. 2009)). And when, as here, a party "seek[s] to compel
arbitration under the FAA," that party "must demonstrate [(1)]
'that a valid agreement to arbitrate exists, [(2)] that the movant
is entitled to invoke the arbitration clause, [(3)] that the other
party is bound by that clause, and [(4)] that the claim asserted
comes within the clause's scope.'" Id. (quoting Dialysis Access
Center, LLC v. RMS Lifeline, Inc., 638 F.3d 367, 375 (1st Cir.
2011)); see also Bossé v. N.Y. Life Ins. Co., 992 F.3d 20, 27 (1st
Cir. 2021). Then, "[i]f the movant makes that showing, the court
has to send the dispute to arbitration," Biller, 961 F.3d at 508
-- that is, "unless the party resisting arbitration specifically
challenges the enforceability of the arbitration clause itself
. . . or claims that the agreement to arbitrate was 'never
concluded,'" Granite Rock Co. v. Int'l Bhd. Of Teamsters, 561 U.S.
287, 301 (2010) (quoting Buckeye Check Cashing, Inc. v. Cardegna,
546 U.S. 440, 444 n.1 (2006)) (cleaned up).
III. DISCUSSION
Before us, the parties' arguments have not changed. So,
having already spelled them out in considerable detail, we forge
ahead.
As always in arbitrability cases, there are disputes
upon disputes, questions embedded within questions, and disputes
about who should be answering those questions. This case very
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much fits that mold, with the parties squabbling over: the role,
if any, to be played by the 2019 Term Sheet; whether the parties
are bound by an agreed-upon arbitration provision that committed
their dispute to arbitration; and who (the court or the
arbitrators) should decide whether the parties agreed to arbitrate
these disputes.
Fortunately, we are not without guidance as to how to
approach these "three types of disagreement." First Options of
Chi., Inc. v. Kaplan, 514 U.S. 938, 942 (1995). First, McKenzie
and the Estate disagree about specific enforcement of the 2019
Term Sheet, i.e., what the parties' respective rights and
obligations are (if any)9 under the terms of that document --
"[t]hat disagreement makes up the merits of the dispute." Id. at
942. "Second, they disagree about whether they agreed to arbitrate
the merits. That disagreement is about the arbitrability of the
dispute." Id. And "[t]hird, they disagree about who should have
the primary power to decide the second matter," id. -- whether
9Keep in mind: the Estate maintains that the 2019 Term
Sheet isn't binding -- and this assertion has a role to play at
multiple levels of analysis. Essentially, the "it's not binding"
argument at once posits that the 2008 Agreement's arbitration
provision is intact since the non-binding 2019 Term Sheet didn't
terminate or supersede the 2008 Agreement, and that same "it's not
binding" argument also supports the Estate's merits argument that
it isn't obligated to perform under the 2019 Term Sheet.
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it's for the court or the arbitrators to decide whether the parties
agreed to "arbitrate arbitrability," id. at 944, so to speak.10
As we'll explain, our job today is confined to that last
inquiry -- the "who decides" question. We conclude that the court
-- not the AAA -- holds the decision-making power to decide whether
the parties intended to arbitrate this dispute.
Who has the power to decide whether the parties agreed to
arbitrate arbitrability?
The Estate urges that the parties clearly agreed to have
an arbitrator decide all disputes -- including the gateway question
of "who decides" what the parties agreed -- and that agreement
should be construed in favor of arbitration. Just look at the
2008 Agreement's broad arbitration language, the Estate urges --
10 These complex arbitrability cases have one thing in common
-- the analysis is dictated by what the parties can (or can't, as
the case may be) show they agreed to do. And that makes sense:
Just as the arbitrability of the merits of a dispute
depends upon whether the parties agreed to arbitrate
that dispute, so the question "who has the primary power
to decide arbitrability" turns upon what the parties
agreed about that matter. Did the parties agree to
submit the arbitrability question itself to arbitration?
. . . If . . . the parties did not agree to submit the
arbitrability question itself to arbitration, then the
court should decide that question just as it would decide
any other question that the parties did not submit to
arbitration, namely, independently. These two answers
flow inexorably from the fact that arbitration is simply
a matter of contract between the parties; it is a way to
resolve those disputes -- but only those disputes --
that the parties have agreed to submit to arbitration.
Id. at 943 (citations omitted) (third emphasis added).
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it delegated arbitrability of disputes just like this one to New
York AAA arbitrators. Therefore, according to the Estate, we need
look no further than the 2008 Agreement and its arbitration
clause.11
But McKenzie says the Estate can't show the existence of
a currently valid agreement to arbitrate -- the 2019 Term Sheet
superseded and "terminated" the 2008 Agreement and its arbitration
provision, did not commit the parties to a new arbitration
agreement, and clearly showed the parties' agreement to "dismiss[]
with prejudice" the ongoing New York arbitration. Add all of this
up, and there's plenty of evidence the parties meant to terminate
both the arbitration clause and the underlying contract: "If there
is no contractual agreement to arbitrate," McKenzie reasons, "that
is for the court to determine, not the arbitrator." Plus, McKenzie
points out, there's a presumption that applies to this kind of
dispute -- one that commits resolution of this "is there an
arbitration agreement even in place" debate to courts to decide,
not arbitrators. Accordingly, McKenzie asserts that the dispute
11 The Estate tucks a waiver argument into a footnote at the
back end of its brief, asserting that "McKenzie appears to
challenge the validity of the arbitration clause here for the first
time on appeal." We disagree. McKenzie challenged the arbitration
clause below, arguing (as he does now) that the arbitration-clause-
free 2019 Term Sheet did away with the parties' obligation to
arbitrate when it superseded the 2008 Agreement. And the district
court clearly understood that argument to be before it when it
issued its decision. See, e.g., McKenzie, 496 F. Supp. 3d at 532,
539.
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should not have gone to arbitrators, and the district court erred
in concluding otherwise.
We employ a presumption that courts (not arbitrators)
must "resolve gateway disputes about whether a particular
arbitration clause binds parties in a particular case." Barbosa
v. Midland Credit Mgmt., Inc, 981 F.3d 82, 93 n.13 (1st Cir. 2020);
see also BG Grp., PLC v. Republic of Argentina, 572 U.S. 25, 34
(2014) (quoting Howsam, 537 U.S. at 84) (observing that "courts
presume that the parties intend courts, not arbitrators, to decide
what we have called disputes about 'arbitrability,'" including
questions like "whether the parties are bound by a given
arbitration clause"); Biller, 961 F.3d at 516 n.11 (quoting Rent-
A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 71 (2010)) (explaining
that it is for the court to consider challenges to "'the precise
agreement to arbitrate at issue,' namely the agreement providing
for arbitration of the validity of the arbitration clause").
Granted, to get around this presumption, "parties may
agree to have an arbitrator decide not only the merits of a
particular dispute but also 'gateway' questions of
'arbitrability,' such as whether the parties have agreed to
arbitrate or whether their agreement covers a particular
controversy[, but they] must do so . . . by 'clear and
unmistakable' evidence." Biller, 961 F.3d at 509 (quoting Henry
Schein, Inc., 139 S. Ct. at 529, 530); see also Rent-A-Ctr., 561
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U.S. at 68–69. Indeed, "[u]nless the parties clearly and
unmistakably provide otherwise," Grand Wireless, Inc. v. Verizon
Wireless, Inc., 748 F.3d 1, 7 (1st Cir. 2014) (quoting AT & T
Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649 (1986)),
"the court must resolve a disagreement among the parties as to
whether an arbitration clause applies to a particular dispute,"
id. (citing Granite Rock, 561 U.S. at 299-300).
And all of this is based on good policy: "the first
principle that underscores all of the Supreme Court's arbitration
decisions is that '[a]rbitration is strictly a matter of consent,
and thus is a way to resolve those disputes -- but only those
disputes -- that the parties have agreed to submit to
arbitration.'" Dialysis Access Ctr., 638 F.3d at 376 (quoting
Granite Rock, 561 U.S. at 299). Accordingly,
courts should order arbitration of a dispute only where
the court is satisfied that neither the formation of the
parties' arbitration agreement nor (absent a valid
provision specifically committing such disputes to an
arbitrator) its enforceability or applicability to the
dispute is in issue. Where a party contests either or
both matters, "the court" must resolve the disagreement.
Id. (quoting Granite Rock, 561 U.S. at 299-300) (cleaned up)
(second emphasis added).
The presumption operates with full force in this case,
and there's no clear and unmistakable evidence that the parties
agreed otherwise. The Estate would have us look to the 2008
Agreement and its "broad" arbitration clause delegating the
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decision-making power to an arbitrator to resolve the dispute at
hand (and all disputes, for that matter). And the Estate
highlights the arbitration-friendly federal policy on which the
district court relied, McKenzie, 496 F. Supp. 3d at 532; citing
the FAA, the Estate urges that when parties have agreed to
arbitrate, courts must enforce those agreements. Here, the Estate
says, the parties clearly agreed to require "AAA arbitration for
all disputes," including gateway disputes about who should decide
arbitrability of their disputes.
If the 2019 Term Sheet didn't exist, these arguments
might persuade. But the 2019 Term Sheet does exist, and the
Estate's contentions here ignore that simple fact -- each of its
arguments operates from the "foundation" that the 2008 Agreement
shows intent to arbitrate and thus requires any disputes be sent
to arbitration, and "[t]he parties never have disputed the
enforceability or validity of the 2008 Agreement's arbitration
clause."
Until now. Just because McKenzie never contested the
arbitration provision before the 2019 Term Sheet came into
existence doesn't mean he can't challenge it now.12 In fact, it's
12We pause here to observe more completely the Estate's
point that, until he filed his complaint in the District of Maine,
McKenzie never asserted that the 2019 Term Sheet was binding,
instead continuing to litigate his case after the 2019 mediation
concluded. Here's the thing: as the parties well know, that's
how litigation works. The record bears out that, in the months
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precisely because the 2019 Term Sheet came into existence that
McKenzie now challenges the 2008 Agreement's arbitration clause.
The Estate may be right that the 2008 Agreement's arbitration
provision is broad and could conceivably cover the parties' dispute
here. But that's true only if the 2008 Agreement and its
arbitration provision are still in effect. And the Estate may be
right that, as a policy matter, arbitration is often favored. But
not always. The important context for that policy is that it came
about in response to courts' resistance to arbitration, Biller,
961 F.3d at 508 (quoting Am. Express Co., 570 U.S. at 232), and
the policy presumes the existence of an actual agreement, Bossé,
992 F.3d at 31 (pointing to the policy favoring "arbitration
agreements"), which of course is the central, underlying problem
McKenzie urges here -- there is no such agreement he says, because
the 2019 Term Sheet showed the parties' intent to terminate the
old agreement, its arbitration provision, and the parties' current
New York arbitration obligations.13
that followed the mediation, the parties were engaged in
negotiations to finalize the 2019 Term Sheet (as already noted,
ultimately, those negotiations didn't pan out). While that
happened, though, the litigation and arbitration proceedings were
still going on. McKenzie could not simply check out on those
proceedings, but rather had to continue engaging with any non-
stayed pending matters. When he assessed that the 2019 Term Sheet
negotiations were not going according to plan, he commenced this
action.
13 The issue here isn't about the scope of the agreement;
it's about the existence of an agreement. Cf. Bossé, 992 F.2d at
31 (citations omitted) (parsing Supreme Court case law to explain
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This is all about what the parties clearly agreed and
intended, remember. See Biller, 961 F.3d at 509 (quoting Henry
Schein, Inc., 139 S. Ct. at 529, 530). McKenzie's claim that the
parties intended the 2019 Term Sheet to supersede and terminate
both the 2008 Agreement and its arbitration clause means we can't
look at the 2008 Agreement in isolation, ignoring the potential
impact of the 2019 Term Sheet on the parties' intent to be bound
by an earlier agreement to send a dispute like this to arbitration.
See, e.g., BG Grp., PLC, 572 U.S. at 34 (quoting Howsam, 537 U.S.
at 84) ("[C]ourts presume that the parties intend courts, not
arbitrators, to decide what we have called disputes about
'arbitrability,'" including questions like "whether the parties
are bound by a given arbitration clause."). This is why, contrary
to the Estate's insistence otherwise, the 2008 Agreement does not
provide the requisite "clear and unmistakable evidence" of an
agreement to have a gateway question like this fielded by
arbitrators -- McKenzie's supportable arguments as to the 2019
Term Sheet directly challenge the 2008 Agreement and its
arbitration clause as "clear and unmistakable" evidence of an
agreement to arbitrate. And because he challenges the
applicability and enforceability of the 2008 Agreement's
that the policy favoring arbitration applies to doubts about the
scope of arbitrable issues; so if an agreement to arbitrate exists,
but a dispute over scope of that agreement arises, we presume those
matters are arbitrable).
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arbitration provision, "the court must resolve [the] disagreement
. . . as to whether [the] arbitration clause applies." Grand
Wireless, Inc., 748 F.3d at 7 (citing Granite Rock, 561 U.S. at
299-300).
Add to all of this that our precedent -- and helpful
guidance from our sister circuits, too -- instructs that review of
a superseding-contract argument like this one is for the courts.
"[A] claim [(like McKenzie's)] that two parties later agreed to
extinguish their arbitration pledge (specifically) is for the
courts to decide." Biller, 961 F.3d at 514 (citing with approval
Dasher v. RBC Bank (USA), 745 F.3d 1111, 1121 (11th Cir. 2014));
see also Jaludi v. Citigroup, 933 F.3d 246, 255 (3d Cir. 2019)
(explaining that "the question of whether a later agreement
supersedes a prior arbitration agreement is tantamount to whether
there is [still] an agreement to arbitrate" in the first place).
That's exactly what we have here: McKenzie claims that the 2019
Term Sheet represents an agreement to terminate and supersede the
2008 Agreement and extinguish the parties' arbitration agreement.
Given this, plus the presumption that courts hold the
decision-making power when it comes to whether parties are bound
by an arbitration clause, see, e.g., BG Grp., PLC, 572 U.S. at 34–
35 (quoting Howsam, 537 U.S. at 84); Biller, 961 F.3d at 516 n.11
(quoting Rent-A-Ctr., 561 U.S. at 71), and because McKenzie points
to the 2019 Term Sheet to "contest" whether the 2008 Agreement's
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arbitration clause is enforceable, it is the court, not the
arbitrators, who must "resolve [this] disagreement," Dialysis
Access Ctr., 638 F.3d at 376 (quoting Granite Rock, 561 U.S. at
300) (cleaned up).
What Comes Next
Given our reasoning, we remand so the district court can
tackle the fact-intensive question (whether the parties agreed to
arbitrate arbitrability of the merits dispute), which will require
resolution of the intertwined concepts driving this case: whether
the 2019 Term Sheet is a superseding contract that terminated the
2008 Agreement and extinguished its arbitration provision and the
obligation to continue the New York arbitration. See, e.g., Fid.
& Guar. Ins. Co. v. Star Equip. Corp., 541 F.3d 1, 5 (1st Cir.
2008) (explaining that a "trial court may summarily enforce [a
settlement] agreement, provided that there is no genuinely
disputed question of material fact regarding the existence or terms
of that agreement"; but, when there are genuine disputes about
material facts regarding "the existence or terms of [a settlement]
agreement," "the court should hold a hearing and resolve the
contested factual issues"); see also In re Estate of Snow, 99 A.3d
278, 282, 284 (Me. 2014) (quoting Muther v. Broad Cove Shore Ass'n,
968 A.2d 539, 541 (Me. 2009)) (observing that "[s]ettlement
agreements are analyzed as contracts, and the existence of a
binding settlement is a question of fact"; so "in circumstances
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where litigants dispute whether an enforceable settlement was
reached outside the presence of the court, findings of fact
regarding the terms of the agreement and the parties' intent may
be required"); Marie v. Renner, 946 A.2d 418, 420 (Me. 2008)
(reasoning that the ambiguity of the record necessitated an
evidentiary hearing so it could be determined whether an
enforceable settlement agreement existed).
A Few Words on McKenzie's
Arbitration-Clause Challenge and Severability
Before we go, we tie up one slightly loose end. Recall
the district court's observation that, "[e]ven assuming that the
underlying [2008 A]greement terminated or was rightfully
rescinded, 'that would not mean [the parties'] duties to arbitrate
their contract-related disputes ended, too.'" McKenzie, 496 F.
Supp. 3d at 539 (quoting Biller, 961 F.3d at 512-13) (third
alteration in original) (discussing the severability of an
arbitration clause from a terminated contract and the presumption
that an arbitration clause survives the termination of the
underlying contract, absent a challenge to the arbitration
agreement itself). "Accordingly," the district court went on, "to
the extent Mr. McKenzie argues that the 2008 Agreement terminated
and is no longer valid, the Court concludes that the arbitration
clause would still be effective." Id. (emphasis added). In so
doing, the district court looked to Biller's point that, "when
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someone argues . . . that a broad arbitration clause is invalid or
unenforceable only on a ground that directly affects the entire
agreement that challenge is ordinarily for the arbitrator to
decide." Id. (quoting Biller, 961 F.3d at 512-13) (omission in
original). Implicit in this aside is that the district court
presumed, at least for that moment, that McKenzie had challenged
the 2008 Agreement "only on a ground that directly affects the
entire agreement." Id. (quoting Biller, 961 F.3d at 512-13)
(emphasis added).
This very brief "to the extent," even-assuming moment,
though, is immediately followed by the district court's clear
recognition that McKenzie wasn't arguing that the 2008 Agreement
was "simply 'terminated.'" Id. Rather, his contention was that
the 2008 Agreement "was completely replaced by the [2019] Term
Sheet," i.e., the superseding-contract argument related both to
the 2008 Agreement globally and specifically as to the arbitration
provision. Id. (citing Biller, 961 F.3d at 514). This is an
important distinction, and one Biller makes clear: the appellants
there made only a sweeping challenge to the (self-terminating,
mind you) underlying agreement rather than mounting an independent
attack on the arbitration agreement itself -- they argued the
agreement "expired only on the grounds that the contract containing
the arbitration agreement terminated," and neglected to do
anything more, like "identify[] evidence that the parties intended
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not only the [underlying] agreement but also their arbitration
obligations to lapse." 961 F.3d at 513-14.
Reading all of this together, then, we do not take the
district court's "even assuming" and "to the extent" lines to mean
that it has concluded, as a matter of fact and law, that McKenzie
did not "mount an 'independent' challenge to the arbitration
agreement" as our case law requires. Id. at 514. All it seems to
have concluded is that if McKenzie was arguing that the arbitration
clause terminated only because the 2008 Agreement terminated, "the
arbitration clause would still be effective"; as the district court
immediately observed, though, that isn't the sum total of what
McKenzie is really saying. McKenzie, 496 F. Supp. 3d at 539.
So McKenzie's argument on this point -- that there is
evidence of the parties' clear intent that the 2008 Agreement's
termination, taken together with the dismissal of the ongoing New
York arbitration and the 2019 Term Sheet's silence on arbitration,
meant that the parties had "extinguished" all arbitration
obligations, Biller, 961 F.3d at 514 -- is ripe for consideration
as part of the work to be done on remand. Ditto the Estate's
retort that McKenzie has not, in fact, carried that "targeted,
independent challenge" burden. And we decline to weigh in.
Indeed, all of this goes to the very "conundrum" the
district court identified: does the 2019 Term Sheet supersede the
2008 Agreement and specifically extinguish the arbitration
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provision; or is it an unenforceable writing that could not have
terminated either the 2008 Agreement or its arbitration agreement?
Originally, the district court didn't reach this because it
concluded that the arbitrators needed to handle the gateway issue
of arbitrability. McKenzie, 496 F. Supp. 3d at 539. Given our
earlier analysis, the "conundrum" now falls to the district court
to navigate.
IV. CONCLUSION
For all of the reasons we detailed above, we vacate the
grant of the motion to compel arbitration, the dismissal of the
complaint, and the dismissal of the request for a preliminary
injunction, and we remand for further proceedings consistent with
this opinion. Each side to bear its own costs.
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